28 December 2009

Appliance Sales Could Be Heating Up

The Washington Post

One of the oddest phenomena of the boom years was how kitchen appliances morphed into sexy, high-maintenance trophies. Even as we were fleeing our kitchens at unprecedented rates to dine out, those kitchens underwent a remarkable transformation, tarted up with Viking ranges and Sub-Zero fridges that cost as much as a Korean compact car.

These days flickered out when the real estate market imploded. When the demand for McMansions vanished, so did the need for high-end appliances to put in them. According to the market research firm NPD Group, spending on major appliances dropped from $24.9 billion in 2007 to $21.8 billion last year. Although that might sound like a lot of money, a lot of that spending comes from nondiscretionary replacement costs; if your fridge bites the dust, you're not going to wait months before getting a new one. And so the decline begins: Since the spring, Viking Range of Greenwood, Miss., has laid off more than 300 workers in five waves, according to the Mississippi Business Journal. Britain's Aga Rangemaster shed about 400 jobs.

But there's a plot twist unfolding in this riches-to-rags story. Even as analysts speak of a "new normal" and a need to adjust expectations, a kitchen that could have been lifted from the set of "Iron Chef" has never been more attainable. Mass-market offerings have been steadily creeping up in price as consumers, particularly younger ones, demand higher-end touches or a sleek, professional look on middle-of-the-road models.

While boomers and seniors are winding down their appliance purchases, millennials are just getting started, and their tastes are higher-end, says Mark Delaney, a home analyst for NPD Group. As a generation that grew up watching the Food Network, today's newly minted adults don't see features such as stainless-steel finishes as frivolous. The industry has responded in kind: Viking rolled out its lower-priced Designer Series line last month, and Sears recently sealed a deal to be the exclusive provider of Whirlpool's Jenn-Air brand, which offers high-end touches such as touch-screen controls. Hamilton Beach's coffee and espresso makers are stainless steel and state of the art. Such products are several notches down from the luxury appliances that inspired them, but they're still pricier than base models.

As a result, analysts are cautiously optimistic that appliance sales are due for a turnaround, albeit a slow one. The shopping habits of the wealthy as tracked by the research firm Unity Marketing show a four-percentage-point increase in the number of people making kitchen and bathroom purchases, which includes major kitchen and laundry appliances as well as such things as cabinets and countertops, in the third quarter of this year compared with the same period last year. Unity founder Pam Danziger attributes the uptick to consumers' desire to make staying at home with indoor grills more pleasant while boosting their homes' resale value.

This increase in purchasing will benefit retailers before it hits manufacturers, because current inventory will have to be cleared out first. But Sub-Zero and Wolf have already rehired a little more than 200 employees at facilities that crank out their high-end appliance lines, and the company said in a release that it will add 60 new jobs at these sites over the next several months.

There are a few other factors driving this recovery. Growing concerns about energy consumption, along with some stimulus-related Energy Department incentives being doled out at the state level, are also giving the sector a boost. Whether consumers are concerned about their carbon footprints or the cost of chilling and heating their leftovers, they're turning to energy-efficient appliances. The government rebates sweeten the pot.

One type of product that stands to benefit hugely from this embrace of the eco-friendly is the induction cooktop. Already popular in Europe, ranges with this feature have trickled into foodie consciousness but are just cracking the mainstream in the United States. They're not cheap -- a Consumer Reports review last year found that they start at a little less than $2,000 -- and they can require an ancillary investment in new pots and pans because the electromagnetic reaction that powers them won't react with aluminum or copper. In exchange for these quirks, though, users get a snazzy-looking appliance that boils water in roughly half the time of a conventional range and consumes far less energy.

Offering convenience as well as energy savings, microwave ovens are outperforming their full-size siblings in the retail arena, according to data from the market research firm Mintel. Among all cooking appliances (including ovens, ranges and toaster ovens), microwaves made up roughly two-thirds of shipments in 2009. David Lockwood, Mintel's director of research, says this relatively higher demand is partially because microwaves tend to wear out faster and be replaced more quickly than major appliances.

The most significant legacy of premium kitchen appliances is the stainless-steel aura of the upscale they have left on more prosaic offerings. Even at their peak of popularity, five-figure stoves never cracked the mainstream, but the aspiration they inspired has fundamentally reshaped a formerly utilitarian market. Although it's unlikely that many of us will be in a position to drop $10,000 on a cooktop even after the economy is humming along again, we're increasingly receptive to dropping an extra $500 or so for a less-fuel hungry model, one tricked out with a pro-style flourish or two, or one that's just prettier than the white enamel workhorses of yore.